Question 1

Monopoly power causes losses in efficiency because the marginal social benefit of output exceeds its marginal social cost at the monopoly output.

Accepted Answer

Monopolies restrict output and charge a higher price, resulting in a deadweight loss, where potential consumer surplus is lost and output is reduced compared to a perfectly competitive market. Therefore, the marginal social benefit (the benefit to society from one additional unit of output) would be greater than the marginal social cost (the cost to society from one additional unit of output) at the monopoly output level, leading to a loss of efficiency.

Question 2

If the marginal social benefit of smoke detectors exceeds its marginal social cost, then additional net gains are possible from increased annual smoke detector production.

Accepted Answer

If the marginal social benefit exceeds the marginal social cost, it means that the additional benefit society receives from producing and using more smoke detectors is greater than the cost of producing them. Therefore, producing more smoke detectors will generate net gains for society.

Question 3

A tax on a product shifts the demand curve.

Accepted Answer

A tax on a product typically shifts the supply curve leftward, indicating a decrease in supply at any given price, rather than shifting the demand curve.

Question 4

When comparing the allocation of two goods relative to two consumers with individual utility functions, multiple points of Pareto efficiency can exist.

Accepted Answer

Multiple points of Pareto efficiency can exist when comparing the allocation of two goods relative to two consumers with individual utility functions because there can be different combinations of allocation that are mutually beneficial to both consumers, without making any of them worse off.

Question 5

All points on a utility possibility curve are efficient but differ in terms of the distribution of well-being.

Accepted Answer

The utility possibility curve represents all possible combinations of two goods that can be produced with the given resources and technology. All points on the curve are efficient, meaning that it is not possible to produce more of one good without giving up some of the other. However, the distribution of well-being among individuals may differ depending on their preferences and initial endowments. Some points on the curve may yield higher levels of overall well-being than others, but all points are technically efficient.

Question 6

Government programs can achieve efficiency when the gains to gainers from those policies exceed the losses to those who bear the costs.

Accepted Answer

This is a basic principle of economics known as the "efficiency principle." It suggests that programs should be implemented only if the benefits to those who gain from them exceed the costs to those who bear the burden of implementing them. This helps ensure that resources are used in the most productive manner possible.

Question 7

Compensation criteria are used to argue that changes in resource allocation should be made if the gains to some groups outweigh the losses to others, even though compensation for losses is not actually made.

Accepted Answer

Compensation criteria are designed to assess whether changes in resource allocation are justifiable even if compensation for losses is not made. It is argued that if the benefits to some groups are greater than the losses to others, then changes should be made, even if those who lose out are not compensated for their losses.

Question 8

The efficient annual output of any given good is attained if that good is made available in amounts up to the point at which the total social benefit of the good equals the total social cost.

Accepted Answer

The answer of The efficient annual output of any given...

Question 9

Positive economic analysis is based on underlying value judgments.

Accepted Answer

Positive economic analysis focuses on factual statements and cause-and-effect relationships without incorporating personal values or opinions, unlike normative economic analysis which is based on value judgments.

Question 10

It is possible for efficiency not to be attained even if all production is carried on without waste.

Accepted Answer

Efficiency is not just about reducing waste but it also involves maximizing output with minimum input, achieving quality standards, meeting customer needs, and continuously improving processes. Therefore, just eliminating waste does not guarantee efficiency.

Question 11

"The government should abolish tariffs to achieve efficiency" is a normative statement.

Accepted Answer

This statement expresses a value judgment about what the government should do (i.e. what is desirable or undesirable), which is a normative statement.

Question 12

A government-subsidized price for a commodity that is higher than the market-driven price results in oversupply relative to the efficient allocation.

Accepted Answer

When the government subsidizes a commodity and sets a price higher than the market-driven price, it encourages producers to increase production. However, since consumers are not willing to pay the artificially high price, there will be a surplus of the commodity, leading to oversupply relative to the efficient allocation. This is because the price is not reflecting the true demand for the commodity.

Question 13

Government regulations that require airlines to serve routes for which the maximum price that pas?sengers are willing to pay for a trip fall short of the minimum price that sellers are willing to accept are likely to cause losses in efficiency.

Accepted Answer

When airlines are required to serve routes where the demand is lower than the cost of operation, they will incur losses in efficiency as they cannot cover their costs or make a profit. This can lead to reduced service quality or even bankruptcy in extreme cases.

Question 14

Positive economics:
A)makes recommendations designed to achieve certain goals.
B)establishes cause-and-effect relationships between economic variables.
C)is based on value judgments.
D)can never be used to make predictions.

Accepted Answer

Positive economics focuses on describing and explaining economic phenomena, including the establishment of cause-and-effect relationships between economic variables. It does not make recommendations, is not based on value judgments, and can be used to make predictions. Therefore, option B is the correct choice.

Question 15

If the marginal social cost of beer production exceeds its marginal social benefit, then more than the efficient amount of beer is being produced.

Accepted Answer

If the marginal social cost of beer production exceeds its marginal social benefit, it means that the negative externalities associated with beer production are greater than the positive effects. This indicates that the production of beer is causing harm to society beyond its benefits, and therefore, the efficient amount of beer production is lower than the current production level.

Question 16

Efficiency is attained when resources are used each year in such a way that no further net gain is possible.

Accepted Answer

Efficiency is achieved when resources are allocated in a manner that maximizes output or benefit, leaving no opportunity for further improvement without sacrificing something else.

Question 17

If it is not possible to make someone better off without harming another, then resource allocation is efficient.

Accepted Answer

This statement aligns with the concept of Pareto efficiency, where an allocation is considered efficient if no individual can be made better off without making someone else worse off.

Question 18

Points lying below a utility possibility curve are efficient.

Accepted Answer

Points lying below a utility possibility curve are inefficient because they do not fully utilize available resources to maximize utility for all parties involved.

Question 19

Efficient outcomes are often viewed as inequitable.

Accepted Answer

This is because efficient outcomes may result in an unequal distribution of resources or benefits, which some individuals may view as unfair or inequitable.

Question 20

The normative approach to public finance prescribes certain actions to achieve predetermined criteria.

Accepted Answer

The normative approach to public finance is based on normative principles and prescribes certain actions to achieve predetermined criteria, such as equity, efficiency, and stability.

Quiz 2: Efficiency, Markets, and Government